Congress and the President will be unable to reach all the economic goals they have set over the next five years, according to testimony presented yesterday by the director of Congressional Budget Office.
Alice Rivlin told the Senate Budget Committee yesterday that "the major new spending programs or tax reductions will be necessary to maintain economic growth at a rate high enough to provide jobs for a growing labor force."
But Congress will be hard-pressed to balance its desire for increased employmentagainst the need to hold down inflation and contain the size of the federal government, she indicated.
For example, any economic path with significant growth will generate enough increased revenues to pay for big program initiatives now under discussion such a welfare reform, catastrophic health insurance and urban programs
But federal outlays would grow significantly at the same time, both in dollar terms and as percentage of the total economy. The would move counter to the administration's desire - and a long-standing congressional attitude - to keep the federal congressional from growing much beyond 22 per cent of total output.
If Congress wants to keep the federal government from engulfing too much of the rest of the economy, these initiatives would have to be held back - or other programs eliminated - and most of the stimulus needed to move toward higher employment would have to come from tax cuts.
Rivlin's office makes no policy recommendations but is supposed to provide non-partisan analysis of the budgetary options open to Congress. She noted that the faster the Congress moves toward full employment through higher growth, the more it must face inflation.
Rivlin told the budget committee that the combination of "increased expenditures or lowered taxes chosen by Congress will depend only on how it weighs economic growth against the risk of inflation but also on how it balances desires for new government programs against desire to limit the role of government.
"Considerable pressures operate in both directions," she warned.
If current programs continued at levels mandated by Congress, receipts would grow from $463 billion in fiscal 1979 (which begins Oct. 1, 1978) to $777 billion in fiscal 1973 - or from 20 to 23 per cent of the total economic output as measured by the gross national product.
Outlays would rise from $495 billion to about $655 billion, declining from 22 per cent to 19 per cent of GNP. Receipts rise much more than outlays because the progressive income tax takes a bigger chunk of each dollar earned.
But, Rivlin said, these projected revenues and outlays that would occur under "current policy" are not consistent with the economic growth objectives adopted by Congress. In fact, if prsent policies were followed without change for the next five years, "The federal budget would exert a restrictive influence on the economy," she said.
"This is because, with incomes rising the inflaction high, the government receipts grow much faster than do the outlays it puts back into the economy in the form of wages, purchases and benefit payments."
To lower employment, then, the government must offset this restrictive influence by cutting taxes,raising spending, or both, but at the same time must choose between inflaction, unemployment and size of government.
She warned that initiatives such as welfare reform, increased defense spending and new health care proposals could cost as much as $100 billion more than current policy spending by 1983.
She estimated that welfare reform would add $18 billion, a 3 per cent rise in defense spending $22 billion, catasrophic health insurance and federalized Medicaid another $30 billion, and an urban inititive $12 billion. "A modest allowance for other increase" would be $15 billion.
Finding other programs to cut in order accomodate these new programs is difficult, she warned.